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Sustainable and Responsible Investing

With investment comes power.  Every financial decision you make is a reflection of your value system and directly impacts the world in a larger way.

Investing with your values has been called by many names.  You may have heard of socially responsible investing (SRI), ethical investing, values based investing, using Environmental, Social, and Governance (ESG) criteria, green investing, or impact and community investing and a few more.  At Bluprint Financial we believe that sustainable and responsible investing is the most compelling and holistic name.

  • Sustainable – The ability to continue over time.  To pursue sustainability is to create and maintain conditions under which humans and nature can exist in productive harmony to support present and future generations.
  • Responsible – To be accountable for those decisions and outcomes within our power.

The truth is that you alone define what is sustainable and responsible investing for YOU.  

Why SRI & why today?

What resonates for you?  We hear many different answers, but they often focus on concepts such as purpose, legacy, justice, and spirituality.  At Bluprint Financial, embracing the golden rule drives our explanation of Why SRI.  How would you like to be treated?  How would you like your backyard cared for?  What hopes do you have for the younger generations of your family?  Regardless of your values and beliefs, the earth and a healthy humanity have limits; we are all interconnected neighbors.  Further, time is the most valuable asset we have.  Today represents the moment that you can choose to make a difference.  

“Yesterday is gone. Tomorrow has not yet come. We have only today. Let us begin.” ― Mother Teresa

Strategies of Sustainable and Responsible Investors

      SRI Investors rely upon three primary pillars to take action:

 I:  Screening and Environmental, Social, Governance (ESG) Integration  

Responsible investors have traditionally focused on screening their portfolio in a manner that exluded areas they didn’t want to support.  Whether that was Quakers in the 1700s prohibiting members from participating in the slave trade or early Methodists adopting the golden rule with their business practices. Current exclusionary screens include companies associated with guns, liquor, and tobacco.  Responsible investing has evolved to now being supporting positive corporate behavior including healthy workplaces and transformative technologies in water and renewable energy.  Recently, ESG integration has achieved widespread adoption as a quantitative approach providing efficient investment analysis and portfolio constructions across many assets.   This often leads to a “best in class” filter that includes a ranking of companies by industry sector or asset class according to the defined metrics for the adopter.

Some of the most common screened areas include:

  • Environmental Track Record and Sustainability
  • Corporate Governance, Business Ethics  and Transparency
  • Product Safety
  • Fair and Safe Workplace
  • International Human Rights
  • Spiritual and Religious Beliefs

II. Shareholder Advocacy

Investors of publicly traded companies have ownership rights that can be leveraged for positive change in corporate behavior.  Many SRI investors implement strategies alone and more often, in concert with other like-minded shareholders to have a say.  Shareholder advocacy can range from simple dialogue to filing shareholders resolutions and organized voting proxy campaigns for raising awareness and potential reform of corporate policy.  

Popular advocacy issues for investors include:

  • Overall Environment and Climate Change
  • Corporate Governance
  • Human Rights
  • Lobbying/Political Contributions
  • Equal Employment

III. Community and Impact Investing

Community Investments implement strategies to specifically support poor and underserved communities in the United States and the rest of the world.  These investments are designed to generate measurable social returns for the areas deployed.  The financial returns for these investments are competitive but offer below market returns.  Impact Investments are designed to be forward thinking solutions that make a difference both socially and environmentally while still creating a financial return.  Impact Investments and Community Investments often overlap depending on their targeted areas and investment objectives.

Examples of these investment themes include:

  • Women EmPOWERment!
  • Affordable Housing
  • Small Business Development
  • Health Care and Education
  • Neighborhood Revitalization
  • Renewable Energy
  • Organic and Healthy Solutions
  • Clean Water Solutions and Waste Minimization

The Performance Myth of SRI

At Bluprint Financial we believe common sense lends credence that investments that have strong management, treat employees well, have less liability risk, and are forward thinking should do better financially.  Fortunately, there is substantial evidence that this thought is not unfounded.

In “From the Stockholder to the Stakeholder: How Sustainability Can Drive Financial Outperformance,”  a 2015 meta-study conducted by Oxford University and Arabesque Partners, "88 percent of reviewed sources find that companies with robust sustainability practices demonstrate better operational performance.”  In addition, the report noted that "80 percent of the reviewed studies demonstrate that prudent sustainability practices have a positive influence on investment performance."

One of the best ways to compare performance is by comparing indexes, minimizing the manager variable, of a portfolio of companies with strong Environmental, Social and Governance ratings to a portfolio without.  The MSCI KLD Social Index includes 400 US Securities with such a record.  From inception of 5/31/1994 thru 9/29/2017 this index has outperformed its unscreened benchmark of the MSCI USA IMI by a fraction.  9.89% Annualized Gross Returns vs. 9.82%.  Negligible, but that is the point.

  • Annualized Returns
  • You cannot invest directly in this indices.  This should not be taken as a reocmmendation to invest in any vehicle that tracks this index. Past performance is not indicative of future results.

Other recent studies by Barclays1, Morningstar2 and Morgan Stanley3 have confirmed earlier research that indicates neutral if not positive performance of socially screened investments when compared to corporations that have lower ESG ratings.

1 See here 

2 See here

3 “Sustainable Reality: Understanding the Performance of Sustainable Investment Strategies.” Morgan Stanley Institute for Sustainable Investing. Web. March 2015.

Investing involves risk. Depending on the different types of investments there may be varying degrees of risk. Socially responsible investing does not guarantee any amount of success. Clients and prospective clients should be prepared to bear investment loss including loss of original principal.